The men and women singles winners will each get $3.1M ($2.52M USD) while a first round loser will take home $34,500 ($27.8K USD).
In a chat with media, Tennis Australia CEO Craig Tiley said, "Obviously this is not a decision we have taken without a lot of consideration. But we have an ongoing commitment to the players that we are determined to help improve the pay and conditions of life on the international tennis tour.
"We are honouring that commitment. We as an international tennis community still have some work to do in ensuring that the life of an international professional tennis player is properly compensated.
"This increase is simply the Australian Open honouring our pledge to the players that we will continue to look at all ways and means possible to get this right.
"That involves increasing prize money as well as cutting and where possible removing the costs associated with playing our events," he added.
Australian Open Prize Money